Optimism Marks Forecast for 2011 Housing Market

I often read about what is going on in the local housing markets - London, Kitchener/Waterloo, Guelph and Toronto. They can be good indicators of what we will see in Woodstock. The President of the London Home Builder's Association had an article in the London Free Press that suggests cautious optimism with regards to the 2011 Housing Market. Personally, I hope that he is correct, although these past few years have been crazy economically, so we shall see. I do know that house prices are still down - so its a great time to buy!

Optimism marks forecast for 2011 housing market

By MIKE BALDINELLI, Special to QMI Agency
Last Updated: December 31, 2010 10:48am

We all have our own thoughts on what has happened economically in our community over the last year and a view of what next year might look like.

If I were approached by a friend or business colleague, I would have a quick response. But to give this column and its readers their due respect, the thought of formalizing an economic view would seem to require some research first.

Turning to December's monthly news release from the Canada Mortgage and Housing Corp., Canada's leading authority on statistics for the housing industry, it looks like my personal thoughts might be on track.

It shows new home starts down by 28% in November 2010 over November 2009 and year-to-date single starts up 48%, but down for the third consecutive month.

According to David Lan, CMHC's housing market analyst, "Builders started most detached homes during the first half of 2010. With more choices in the resale market during the second half of the year, buyers were able to find what they wanted in resale, which caused detached home construction to slow since September this year."

To understand the housing industry, you need to look at starts over time. Year over year doesn't give the full view because it leaves you not knowing whether the prior year was a year of high or low building activity.

A quick scan through the numbers in the chart below offers a perspective of building activity over the last seven years. Obviously the economic challenges felt worldwide are also felt here.

Lan's observation is correct in that housing starts have slowed in the last part of the year. What doesn't show though, is the other influence: the $6,000 increase in development charges implemented by the municipality in January 2010. This dramatic increase resulted in an influx of permits in December 2009, effectively shifting starts meant for the full year, into the first half of 2010, as permits carry a six-month expiry. Hence the slowdown later in the year while the remaining inventory of homes was being sold.
Checking again with the experts for the 2011 picture, highlights from CMHC's forecast at their November Housing Outlook Conference include:

Sales outlook: After declining in the second half of 2010, existing home sales will recover gradually through 2011. However, total sales in 2011 will be lower than they were in 2010.
Employment will recover gradually and is expected to stabilize in the fourth quarter 2010 and strengthen over the course of 2011.

Net migration to the London CMA will be up in 2010 and 2011, reaching about 2,700 people in each year. Improving employment opportunities will contribute to a decline in the number of Londoners leaving for other areas within the country in search of work. The number of people moving to other provinces appears to have peaked in 2009 during the worst of the economic downturn and now fewer people are leaving. As well, higher levels of international migration will bring in new residents.

Mortgage rate outlook: According to CMHC's base case scenario, posted mortgage rates will remain flat in the second half of 2010 and in 2011.

Looking forward, the general feeling within our industry varies from cautious optimism to excitement. Personally, I'm enthusiastic about London's potential. We have all the essential elements for a dynamic vibrant community -- and with a willing spirit, we can master the challenges before us.
Mike Baldinelli is president of the London Home Builders' Association